"No clear sign" inflation accelerating past 2.0%, Fed's Powell says
There are no clear signs that the rate of growth in inflation is set to accelerate past the US central bank's 2.0% target, Federal Reserve chairman, Jerome Powell, said at the start of the Fed's annual Economic Symposium in Jackson Hole.
In a speech that was centred on this year's central topic, the changing structure of the economy and what it means for the conduct of monetary policy, Powell stressed the need to be wary of the fact that the typical signposts that policymakers follow in setting policy are "hazy" at best, drawing an analogy with the stars used by navigators.
So given the overriding aim of not moving neither too fast, nor too slow, when tightening policy, Powell said that a path of gradually rising interest rates is "the FOMC's approach to taking seriously both of these risks".
"While the unemployment rate is below the Committee's estimate of the longer-run natural rate, estimates of this rate are quite uncertain. The same is true of estimates of the neutral interest rate, he explained.
"We therefore refer to many indicators when judging the degree of slack in the economy or the degree of accommodation in the current policy stance. We are also aware that, over time, inflation has become much less responsive to changes in resource utilization."
So just how much does it matter if estimates of the natural rate of unemployment are now about 1.0% below what they were in 2013?
That, Powell said, equated to about 1.6m more Americans finding a job.
Similarly, a one percentage point drop in estimates of the neutral rate of interest since 2013 meant that when the Fed began to tighten policy, it was in fact already less 'easy' than had been thought.
Against that backdrop, Powell said: "While inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating.
"[...] s the most recent FOMC statement indicates, if the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate."